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Monday 10th January 2022
Hi Friend,
TSE Monday Morning Markets ...
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| | The Saturday Economist Monday Morning Markets ...
This is our Monday Morning Markets Update for the 10th of January 2022. Markets are grappling with the thought of leaving Planet ZIRP. Over extension now threatened with tapering and a tighter monetary policy. FOMO Fear of Missing Out, now challenged by FOBIA, the Fear of Being In (Alone).
Top line, "Cash is Trash, (Jamie Dimon), Bonds are Garbage ( Bill Gross), Equities Are Overvalued (Everyman), Bitcoin is worthless (Jamie Dimon), Most NFTs are junk (John Hargrave)" ...
When it comes to understanding market moves, "Any explanation is better than none" (Nietzsche). Be careful out there ...
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| | Markets down -0.4% ... No "Easy Money" in 2022 ...
Our global equity index basket closed down -0.4% this week. U.S. stocks led the way. Nasdaq closed down -4.5%. The S&P was down almost -2%. The broader DOW index was down by just -0.3%.
The "First Five Days" indicator suggest more trouble ahead. Since 1950, the S&P's performance in the first five days of trading, has served as a strong indicator of how the year might end. There have been 25 years in which the First Five Days have been down. In 11 of those years, the S&P has posted negative returns for the year. The index has averaged a meager 1% gain when the indicator is negative at start. Our valuation indicator suggest a 15% over valuation for US stocks.
European markets were up by 1%, FTSE the star performer up by 1.4%. Nikkei and Shanghai traded lower. The Hang Seng was up 0.4%. The Indian BSE posed a 3% rise.
Easy money over the past year, will be more difficult to find in the year ahead. Markets will adjust to rising base rates and bond yields. FOMO v FOBIA. "Fear of Missing Out", yielding to "Fear of Being In Alone". It will make for a cautious approach to equity allocation.
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| | Bond Market Sentinel ... US Ten Year Yield 1.75 ...
US ten year bond yields closed up 24 basis points in the week to close a 1.75. Tapering set to terminate in March this year. We expect bond yields to test the 2.50 level 'ere too long. The inherent capital loss a modest 40%, buyers beware, as base rates rise.
UK ten year gilts closed up 18 basis points to close at 1.15. We expect ten year gilt rates to hit 1.50 midway through the year.
In Japan and Europe rates were up slightly. Composite rates still negative in Europe but not for long. First the test of 1.80 in the U.S. and 1.25 in the UK?
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| | Exchange Rates ... Sterling level at $1.35 ...
Sterling closed level against the dollar at $1.35 but up against the Euro at €1.20 from €1.19. The Euro was under pressure against the Dollar down to $1.13 from $1.14.
In the US. bond yields are rising, the Fed is set to raise rates three times this year.
Much of the drama is already in the market. We expect Sterling to average £1.35 through the year, testing the £1.38 level in the process. Against the Euro we model €1.18 with a slight uplift in the Euro Dollar rate to $1.15. This on the assumption the ECB will yield to peer group pressure and begin to raise rates towards the end of the year.
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| | Empires of the Cloud down 4.5% ...
Our Empires of the Cloud Fund was down 4.5% in the week. Microsoft and Google leading the way. Apple was down by just over 3%.
Our valuation index suggests a 16% over reach. A combined market cap of $9.6 trillion and an average PE of 36.0 suggests a period of consolidation should follow at best.
Analysts remain bullish on the empires of the cloud fund. Developments in AI, E-cars, virtual reality and the Metaverse, bode well for the quins. The bulls anticipate a 15% gain for the fund over the next twelve months. Super bulls foresee a 30% gain. The bears anticipate a modest 5% worst case draw-down. What's not to like?
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| | Dynasties in the Cloud up 4.6%
In China we track, our "Dynasties of the Cloud" fund. We follow the fortunes of Alibaba, Baidu, Tencent, Weibo and Xiaomi. The fund was up by 4.6% in the week, offsetting the US losses.
Is this a sign of rotation? Or a recognition of an oversold state. Either way, it is a strong argument for diversification.
Analysts consider the fund to be oversold by the end of 2021. Gains in the year ahead are expected to out perform with little downside. 8% the low level gain, 40% gain the average expectation. The medium term upside is now 75%. Baidu, Weibo and Alibaba the most exciting in the pack.
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| | Crypto Wallet down -11.4% ... Our Crypto Wallet was down 11.4% this week. Bitcoin trades at $41,400 this morning for a loss of 12%. Goldman made the call for $100,000 dollars within the next five years. A full test of $40,000 may follow once again.
The wallet remains a trader's dream pack. Always the potential for an investor's nightmare. Not for the faint hearted.
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| | Oil Brent Crude higher ... $81.59 ...
Oil
prices Brent Crude closed up at $81.59 last week.
$80.00 may be the range over the first quarter. $75 Brent Crude through 2022 is our benchmark call.
The inflation impact, year on year comparison, fades into the second quarter of the year and is eliminated in the second half. Volatility remains in expected market demand, exacerbated by geopolitical supply side complications. That's our understatement of the week!
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| | That's all for this week's Monday Morning Markets Annual Review, have a great week ahead.
John
Friday Forward Guidance, The Saturday Economist, Monday Morning Markets. Forward to a Friend or Colleague. They can sign up for updates here.
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© 2022 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
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